Great presentation from the Bled School of Management in Slovenia: http://www.iedc.si/

1. How managers create and destroy value
in times of crisis
Nenad Filipović
IEDC –Bled School of Management

2. Many things are matter of perception
When the storm comes,
some build walls,
the others build windmills.
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3. Current economic crisis was fairly easy
to predict and direct causes can be
clearly traced
 Introduction of non-transparent high-risk derivatives was
not matched with appropriate internal risk management
systems and procedures
 External risk and fraud control mechanisms were too loose
 Dogmatic liberalism believed in self-regulatory capacity of
markets
 Managers (particularly in financial institutions) had huge
bonuses based on the revenues rather than sustainable
(risk-adjusted) profits
 Fast moving international careers and deviant
compensation systems stimulated short-term thinking
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4. What is less obvious are background
changes in social and economic setting
 Obsession with growth regardless of price to pay for it
 IT technology running out of steam as productivity increase
driver
 Managers enjoy extremely low levels of trust in companies
and society
 Shareholders gained excessive power over other
stakeholders
 Unclear long-term policy towards global energy balance
 Globalization opening more questions than providing
answers
 “Consumer mentality” pushed at all levels of society, with
spending beyond current means becoming a norm
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5. Consequences for our region are
creating more damage than in the West
 Central and Eastern Europe practically stopped growing
and significantly deteriorated its risk rating
 National budgets became unsustainable, high levels of
indebtedness difficult to service
 Governments have problems in acting as sources of
liquidity, focus on banking sector, raise of protectionism
 Huge drop in orders for B2B industries, huge drop in sales
of durable goods, some drop even in FMCG and services
 In countries with more consolidated retail, this is the source
of next wave of liquidity problems
 Media portrait political and business leaders as incapable,
but dependence on global economy limits space for action
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6. Practically all companies are impacted
by the crisis
 No access to external financing
 Huge drop in equity value distorted all performance
indicators
 Drop in revenues and liquidity problems fought mostly with
production stoppages and labor cost reductions, but effects
limited (possible wave of bankruptcies)
 Company climate at lowest level since 1998 (in some
countries since 1993)
 Drop in product / service quality
 Practically no capital investments, huge drop in R&D /
educational expenses
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7. Although crisis could have been
predicted, most companies were
“taken by surprise”
Why?
 Lack of competence
Immediate Defensive
 Conflict of interest restructuring
 Fear Perceived
Strategic
Weakly restructuring
need
aligned
What to do? No change
Distant change
Corporate governance Low Perceived High
 Selection feasibility
and emotions
 Supervision
 Stimulation
 Support
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8. “Surgery” is the typical first reaction to
crisis: it is needed, but requires balance
 Centralize
 Stop the cash bleeding
 Get rid of non-core assets
 Focus on cost cutting
 Downsize
 Focus on core business efficiency …
…but be aware that 25% of revenue drop cannot
easily be compensated by cost decrease
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9. Even though surgery might be
successful, it may well happen that
the patient dies
 Short term thinking develops, need for operational
efficiency eliminates other priorities
 Inward focus makes the company lose sight of customers
and markets
 Some of the eliminated assets prove to be critical for long-
term development
 Centralization stiffens the company, creates bottlenecks,
lack of initiative taking and imagination
 Survivors„ syndrome develops, along with cynicism, fear
and lack of trust
 Company loses readiness and ability to learn
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10. Along with efforts to control the
bleeding, focus must be turned to
defending and growing the business
 Actively manage the top line
 Make sure to chose wining partnerships
 Defend the pricing (even if that requires extra reduction of volumes),
give discounts in kind rather than money
 Signal to competitors that price wars are “lose-lose” game
 Reconsider the business model, look for opportunities to boost the
service fast
 If reasonable, move office staff to sales, expand your sales portfolio,
increase bundling and cross-selling
 Reduce risks for customers
 Selectively attack customers of weakened competitors
 If in B2B, consider going after renovations / spare parts market
 Share best sales practices across organization
Source: Simon-Hucher & Partners
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11. In times of crisis people turn to trustful,
inspirational leaders
 Face reality, tell the truth and ask for truth
 Be ready for worst case scenario, understand what is
needed to survive it
 Adopt positive mindset, turn crisis into opportunity,
communicate “positive future” to all stakeholders
 Have time for your (best) people, involve them
 Actively support learning, out-of-box thinking and search for
new value added
 Act as a role model (e.g. make sacrifice yourself before
asking it from others)
 Use all opportunities / good practices to build trust
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